Avanti Feeds Ltd. (AVANTIFEED) - Director Report

Company director report

Your Directors have pleasure in presenting their 23 d Annual Report togetherwith the Audited Financial Statements of your Company and its subsidiary for the yearended 31st March 2016.

1. Financial summary or highlights:

The summarized standalone and consolidated financial results of your Company and itssubsidiaries are as under:

(Rs. in Lakhs)

Financial Year ended

Particulars

Standalone

Consolidated

31/03/2016

31/03/2015

31/03/2016

31/03/2015

Total Revenue

201828.87

178065.68

201828.87

178065.68

Profit/(loss) Before Interest Depreciation & Tax (PBITDA)

24327.04

19001.54

24976.15

19001.11

Finance Charges

133.94

137.19

135.14

137.19

Depreciation

935.47

879.67

1022.67

879.67

Provision for Income Tax (including for earlier years)

7731.40

6326.82

7920.04

6326.82

Net Profit/(Loss) After Tax

15526.23

11657.86

15898.30

11657.43

Profit/(Loss) brought forward from previous year

17847.03

10395.51

18106.68

10720.81

Profit/(Loss) carried to Balance Sheet

27947.01

17847.03

28430.44

18106.68

2. Summary of Operations & State of Company's affairs:

The Profit for the year under consideration i.e. 2015-16 before depreciation financecharges and tax is Rs.24327.04 lakhs as compared to a profit of Rs. 19001.54 lakhs inthe previous financial year. The Profit for the year after tax is Rs.15526.23 lakhs asagainst a Profit of Rs. 1 1657.86 lakhs during the previous financial year.

After five years of 20-25% annual growth in the current year growth of shrimp cultureremained stagnant. Although during the first half of the year 2015-16 there was growth of10-15% in culture area and density of culture in the second half of the year the shrimpculture could not be taken up in some areas due to shortage of water because ofinsufficient rainfall. Coupled with this culture in some areas was affected withdiseases. These developments discouraged farmers of other areas in taking up 2nd crop.The 2nd crop in the year 2015-16 was less by 25-30% as compared to previousyear. In these challenging times farmers using your Company's feed took out successfulcrop in many disease affected areas mainly because of the better hygiene practices anddisease preventive measures adopted by the farmers with the technical support of yourCompany's technical team. Despite these challenges and no growth in industry during theyear your Company's Shrimp Feed sales grew by 8% as compared to previous financial yearin quantitative terms mainly because of the quality of feed and technical support extendedby your Company to the farmers. The year 2015-16 ended with shrimp feed sales at 252590MT an increase of 19101 MT as compared to the previous financial year.

The shrimp processing and export division sales recorded export of 4377 MT as against3409 MT in the previous year representing an increase of 22% in quantitative terms.

The four windmills of your Company located in Karnataka State with a total capacity of3.2 MW have generated 49.94 lakh units as against 55.41 lakh units in the previous year.The power generated during the year was sold to Karnataka Power Transmission CorporationLimited under Power Purchase Agreement.

During the year your Company divested its Shrimp Processing & Export Division toits subsidiary M/s. Avanti Frozen Foods Private Limited (AFFPL) by way of slump saleunder Business Transfer Agreement. This was done in order to improve business efficacy andto bring global recognition to Shrimp Processing Business. The effective date of transferof the Shrimp Processing & Export Division to AFFPL was 01.11.2015. Consequently AFLhas to transfer the statutory and regulatory licenses within India and in USA to AFFPL soas to carry on the business in AFFPL's name. The process of obtaining the approvals fromall departments is a lengthy process. Once the inland approvals are obtained AFL has toapproach US Department of Commerce for 'Changed Circumstances Review1 to permittransfer of name from AFL to AFFPL in their records. This will allow AFFPL to export to USat current Anti Dumping Duty (ADD) of 2.96% which is presently applicable to AFL. In theabsence of this transfer all exports to USA byAFFPLwill attract 10.17% ADD. It is givento understand that USDOC generally takes around 3-5 months time for effecting this change.In order to maintain the continuity of the business during this changeover process yourCompany is continuing the Shrimp processing & Export business in its own nameon behalfof AFFPL.

The revenue and related expenditures for the period from 01.11.2015 to 31.03.2016 ofthe transferred division i.e. Shrimp Processing & Export Division are included inStatement of Profit & Loss of AFL. However the profit from operation for this 5months period starting from 01.11.2015 to 31.03.2016 amounting to Rs. 696.73 lakhs istransferred to AFFPL which is reflected in the standalone results of your Company as ExtraOrdinary Expense. A detailed statement of the operations of Shrimp Processing & ExportDivision forthe 7 months period from 01.04.2015 to 31.10.2015 and 5 months period from01.11.2015 to 31.03.2016 is given in Note No.31 of Financial Statements.

No material changes and commitments have occurred afterthe close of the financial yeartill the date of this Report.

During the year under review there is no change in nature of the business of theCompany. The affairs of the Company are conducted in accordance with the accepted businesspractices and within the purview of the applicable legislations.

3. Share Capital:

During the year under review the company sub-divided One (1) equity share of Rs.10/-each into five (5) equity shares of Rs.2/- each with the approval of the members withrequisite majority by way of postal ballot the results of which were declared on26.10.2015. The Record date for sub-division of Equity shares was 27.1 1.2015.

As on 31st March 2016 the issued subscribed and paid up share capital ofyour Company stood at Rs.90830420./- comprising of 45415210 equity shares of Rs.2/-each.

4. Dividend:

Your Directors have recommended a dividend of Rs.7/- per equity share of Rs.2/- eachfully paid up for the Financial Year 2015-16. The dividend if declared by the Members atthe 23d Annual General Meeting to be held on 13.08.2016 will be paid on orbefore 30.08. 2016.

5. Reserves:

The Company proposes to transfer Rs.1600 lakhs to the General Reserve out of theProfits available for appropriation.

During the year 2015-16 Nine Board meetings were held. The details are as under:

SI.No.

Date of Board Meeting

No of Directors Attended

1

09.05.2015

9

2

04.07.2015

n

3

07.08.2015

10

4

12.09.2015

9

5

07.11.2015

10

6

18.12.2015

9

7

30.01.2016

8

8

16.02.2016

10

9

16.03.2016

9

6.2 Committees of the Board:

The details of the Committees of the Board viz. Audit Committee Nomination andRemuneration Committee and Stakeholders Relationship Committee are reported in the Reporton Corporate Governance which forms part of the Board's Report.

6.3 Meeting of Independent Directors:

The details on the separate meeting of the Independent Directors is reported in theReport on Corporate Governance which forms part of the Board's Report.

6.4 Familiarization Programme for Independent Directors:

The details of the familiarization programme for the Independent Directors is reportedin the Report on Corporate Governance which is attached to the Board's Report.

7. Changes in Directors and Key Managerial Personnel:

During the year under review Andhra Pradesh Industrial Development Corporation Limitedhas withdrawn the nomination of Sri J.S.V. Prasad on 20.11.2015 and appointed Sri ShamsherSingh Rawat IAS on 10.12.2015 as Nominee Director.

Sri A. Indra Kumar was appointed as a Managing Director of the Company by the membersat the 18th Annual General Meeting held on 06.08.2011for a period of 5 yearswith effect from 1.7.2011. The Nomination and Remuneration Committee recommended there-appointment of Sri A. Indra Kumar as Chairman and Managing Director for a furtherperiod of 5 years with effect from 01.07.2016. The Resolution seekingreappointment of Sri A. Indra Kumar as Chairman and Managing Director is placed forconsideration and approval of the members at the ensuing Annual General Meeting.

In terms of Article 105 and 106 of the Articles of Association of the Company Sri N.Ram Prasad and Mr. Bunluesak Sorajjakit retire by rotation at the ensuing Annual GeneralMeeting and being eligible offer themselves for re-appointment. The resolutions to thateffect are placed for consideration and approval by the members at the ensuing AGM.

8. Change of Registered Office:

As per decision of the Board of Directors of the Company on 16.03.2016 the RegisteredOffice of the Company was changed within the City of Visakhapatnam from H.No.3 Plot No.3Baymount Rushikonda Visakhapatnam-530 045 Andhra Pradesh to H.No. 37 Plot No.37Baymount Rushikonda Visakhapatnam-530 045 Andhra Pradesh with effect from 1.4.2016.

9. Extract of Annual Return:

Pursuant to Section 92(3) of the Companies Act 2013 and Rule 12(1) of the Companies(Management and Administration) Rules 2014 extract of Annual Return is enclosed atAnnexure-1.

10. Corporate Social Responsibility Committee:

Composition:

SI. No.

Name

Designation

Chairman/ Members

1

Sri A. Indra Kumar

Chairman & Managing Director

Chairman

2

Sri C. Ramachandra Rao

Joint Managing Director Company Secretary & CFO

Member & Compliance Officer

3

Sri N. Ram Prasad

Non-Executive Non-Independent Director

Member

4

Sri A.V. Achar

Independent Director

Member

5

Sri B.V. Kumar

Independent Director

Member

Terms of Reference:

The Committee is primarily responsible for formulating and recommending to the Board ofDirectors a Corporate Social Responsibility (CSR) Policy and monitoring the same from timeto time amount of expenditure to be incurred on the activities pertaining to CSR andmonitoring CSR activities.

CSR Policy

The Company's CSR Policy is disseminated atwww.avantifeeds.com

During the year 2015-16 two (2) meetings of the Corporate Social ResponsibilityCommittee were held on 09.05.2015and 16.03.2016.

CSR Expenditure during the year 2015-16 :

As per Sec.l35(5) of Companies Act 2013 an amount of 2 percent of the average NetProfits of the Company made during the three immediately preceding financial years whichworks out to Rs.303.08 lakhs is to be spent towards Corporate Social ResponsibilityActivities which includes unspent amount of Rs.63.68 lakhs of previous year. The Companyhas spent Rs. 427.97 lakhs towards the CSR activities in the financial year 201516 whichis more than mandatory requirement by Rs.124.89 lakhs. The detailed Report on the CSRActivities is annexed to Board's Report.

Being a socially conscious corporate citizen AFL is committed to make qualitativedifference in society by helping small farmers in taking out successful crop providingquality education to students from rural areas make health care accessible tounaffordable spread awareness of preventive health care improve environment byincreasing green cover and making available safe drinking water to marginalised sectionsof the society.

To provide quality higher education among students from rural areas AFL is supportingcollege in Kowur set up and run by its educational trust AVR Trust named after itsfounder Chairman Late Sri Alluri Venkateswara Rao. This college was set up in 1998 and has1250 students. This college imparts graduation courses in Commerce and Science and alsohave post graduation courses in Organic and Analytical Chemistry. 65% of the studentsstudying in this college are women. The college recently started imparting employableskills to it students in computer applications. AFL donated 100 computers to the collegeand in last two years 155 students were recruited in campus selection by reputedcorporates.

In order to provide timely diagnosis and preventive health checks in rural areas AFLconducts health camps at regular intervals. A majority of the beneficiaries of this areladies and aged people in the vicinity of our factories.

To promote healthy lifestyle among the masses yoga camps are organised at regularintervals which has seen enthusiastic participation by women and children.

Company installed RO plants in villages not having access to safe drinking water. Theinitiative of the Company has benefited families of marginalised sections of society.

Successful and profitable aqua culture by farmer is of paramount importance. We at AFLstrive to ensure this not only by imparting continuous training to farmers byinternational experts but also promote use of mechanical and water parameter monitoringequipments in the culture process which are essential for success of shrimp culture.

(a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe Profit and Loss of the Company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis;

(e) the directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

(f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

12. Internal financial controls:

The internal financial controls with reference to the Financial Statements for the yearended 31st March 2016 commensurate with the size and nature of business of theCompany.

Sri A.V. Achar Sri B.V. Kumar Sri M.S.P Rao Sri K. Ramamohana Rao Sri N.V.D.S. Rajuand Smt. K. Kiranmayee are Independent Directors on the Board of your Company. In theopinion of the Board and as confirmed by these Directors they fulfil the conditionsspecified in section 149(6) of the Act and the Rules made thereunder about their status asIndependent Directors of the Company.

The details of Policy on Directors appointment and Remuneration (i.e. Nomination andRemuneration Policy) criteria for determining qualifications positive attributesindependence of directors are included in Report on Corporate Governance forming part ofthe Board's Report.

Further the information about the elements of remuneration package of individualdirectors is provided in the extract of the Annual Return in FormMGT-9 enclosed to Board'sReport.

15. Statutory Auditors their Report and Notes to Financial Statements:

At the 21st Annual General Meeting of the Company held on 2nAugust 2014 M/s. Karvy & Company Chartered Accountants Hyderabad have beenappointed as Statutory Auditors of the Company fora period ofthree years i.e.(2014-152015-16 and 2016-17). The ratification of appointment M/s Karvy & CompanyChartered Accountants as Statutory Auditors fortheyear2016-17 is proposed at the ensuingAGM.

Further the report of the Statutory Auditors along with notes to Schedules are annexedto this report.

16. Secretarial audit:

In terms of Section 204 of the Companies Act 2013 and the Rules made thereunder M/s.V.Bhaskara Rao & Co. Hyderabad Practicing Company Secretary has been appointed asSecretarial Auditor of the Company for the year 2015-16 on a remuneration ofRs.100000/- plus service tax as applicable and reimbursement of actual travel and out ofpocket expenses. The report of the Secretarial Auditors is annexed to this Report.

17. Internal audit:

In terms of Sec.138 of the Companies Act 2013 and the relevant Rules the Companyappointed Smt. Santhilatha Chartered Accountant an employee of the Company as InternalAuditor. The Internal Auditor directly reports to the Audit Committee.

As per the recommendations of energy audit high capacity motors in shrimp manufacturing plants are operated in Star mode instead of Delta thereby reducing power consumption. Lights in all the manufacturing units changed to LED from CFL.

(ii) The steps taken by the Company for utilizing alternate sources of energy

50% of the power required for all the lighting of Shrimp Feed manufacturing plant in Gujarat is generated from solar panels installed on the rooftops of the factory.

(iii) The capital investment on energy conservation equipments



(b) Technology absorption : Not Applicable

(c) Foreign Exchange Earnings and Outgo: During the year under review the totalForeign Exchange outgo was Rs. 9363.56 lakhs and Foreign Exchanged earned wasRs.25708.63 lakhs.

22. Risk Management Policy:

In terms of the requirement of Section 134(3)(n) of the Companies Act 2013 the Companyhas developed and implemented the RiskManagement Policy. Audit Committee and the Boardreviews the same periodically. The details of the Policy are available on Company'swebsite : www.avantifeeds.com.

23. Manner in which formal annual evaluation has been made by the Board of its ownperformance and that of its Committees and Individual Directors:

Pursuant to the provisions of the Companies Act 2013 the Board has carried outevaluation of (i) its own performance (ii) the directors individually and (iii) workingof its Committees. The manner in which the evaluation was carried out is reported in theReport on Corporate Governance forming part of this Report.

24. Subsidiaries and Associate Companies:

24.1 Report on the performance of Subsidiaries Joint Ventures and associates:

The report on the business of the Subsidiaries Joint Venture and Associate companiesas on 31.03.2016 is as follows:

24.2 Subsidiaries:

During the year under review Avanti Frozen Foods Pvt. Ltd. and SVIMSAN Imports andExports Pvt. Ltd. are wholly owned subsidiaries.

(a) Avanti Frozen Foods Private Limited (AFFPL):

During the year Company transferred its Shrimp Processing & Export Business toAFFPL under a slump sale with effect from 01.11.2015 with requisite approval of membersbyway of Postal Ballot. However as the regulatory approvals for operating the productionfacilities in the name of AFFPL will take time Avanti Feeds Limited carried out theoperations of the Shrimp Processing & Export Business on behalf of AFFPL. As such thesales purchases and other expenditures for the period from

01.11.2015 to 31.03.2016 are recorded in AFL and profit before tax for this periodamounting to Rs. 696.73 lakhs is transferred to Avanti Frozen Foods Private Limited. Adetailed statement of the operations of Shrimp Processing & Export Division for the 7months period from 01.04.2015 to

31.10.2015 and 5 months period from 01.11.2015 to 31.03.2016 is given in NoteNo.31 of Financial Statements.

Further AFFPL is implementing a 15000 MTA capacity shrimp processing plant atYerravaram in East Godavari District of Andhra Pradesh. The total Capital Expenditure ofthe plant is estimated at Rs. 9000 lakhs. This project is expected to start commercialoperations from September 2016.

Managing Director in Avanti Frozen Foods Private Limited:

Sri A. Indra Kumar was appointed as Chairman and Managing Director on the Board ofAvanti Frozen Foods Private Limited [wholly owned subsidiary of Avanti Feeds Limited] bythe members of the Company w.e.f. 1.11.2015 at the Extra Ordinary General Meeting heldon 18.03.2016 on a remuneration of (i) partly by way of salary of Rs.200000/- per monthin the pay scale of Rs.200000 - 40000-400000 and Perquisites ex-gratia subject to alimit of 20% of annual basic remuneration and (ii) partly byway of Commission at the rateof 4% on the Net Profits of the Company.

The consolidated financial statements of the Company and its subsidiaries prepared inaccordance with the accounting principles generally accepted in India including theAccounting Standards specified under Section 133 of the Companies Act 2013 read with Rule7 of the Companies (Accounts) Rules 2014 from part of the Annual Report and are reflectedin the Consolidated Financial Statements of the Company.

The Annual financial statements of the subsidiaries and related detailed informationwill be kept at the Registered Office and Corporate Office of the Company as also at theRegistered Offices of the respective subsidiaries and will be available to the investorsseeking information at anytime.

The Company has adopted a Policy for determining Material subsidiaries in terms ofRegulation 16(l)(c) of the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015. The Policy as approved by the Board isavailable on the website of the Company at www.avantifeeds.com

24.3 Joint Ventures :

During theyear under review there were no Joint Ventures.

24.4 Associate Companies:

1. Srivathsa Power Projects Private Limited:

The Company has a 17.2 MW gas based independent power project located at Razole EastGodavari District of Andhra Pradesh. Avanti Feeds Limited holds 49.99% of equity shares ofthe Company. The unit was not in operation since July 2014 as gas supplies were stoppedby Gas Authority of India Limited (GAIL) due to a blast in their gas supply pipeline. Thegas supply was resumed from 27.01.2016 and now the plant is operational. As per theunaudited Financials for the year 2015-16 the Company reported a turnover of Rs.485.66lakhs and a loss of Rs.212.96 lakhs after charging interest and depreciation.

2. Patikari Power Private Limited:

The Company has a 16 MW Hydel Power Project in Himachal Pradesh. Avanti Feeds Limitedholds 25.88% of equity shares of the Company. As per the unaudited Financials for the year2015-16 the Company generated 564.80 lakhs saleable energy units yielding a gross salesincome of Rs.1270.73 lakhs and a net profit of Rs.11.24 lakhs after charging interestdepreciation and tax.

24.5 Names of companies which have become or ceased to be subsidiaries joint venturesor associate companies:

During the year under review Avanti Frozen Foods Private Limited became a 100%subsidiary of the Company the details are indicated at Point No.24.2 of this report.There were no other companies which have become or ceased to be Joint Ventures orassociate companies during theyear ended 31st March 2016.

24.6. Statement containing salient features of financial statements of subsidiaries:

Pursuant to sub-section (3) of section 129 of the Act the statement containing thesalient features of the financial statements of Company's subsidiary and associatecompanies is enclosed at Annexure-4 of Board's Report.

25. Public Deposits:

The Company has not accepted any Public Deposits and as such no principal or interestor any claim is outstanding as on the date of the Balance Sheet.

25.1 Details of Deposits which are not in compliance with the requirements of Chapter Vof Companies Act 2013:

The Company has not accepted any deposits from the public and as such there were nodeposits which are not in compliance with the requirements of Chapter V of the CompaniesAct 2013.

26. Significant and material orders passed by the regulators:

None of the orders passed by Court or Tribunal has any impact on the going concernstatus of the Company or significant impact on Company's operations.

27. Internal Controls Systems and Adequacy:

The Company has in place an adequate system of internal controls. The details of theinternal controls system are given in the Management Discussion and Analysis Report whichforms of the this Report.

28. Management Discussion & Analysis:

Management Discussion and Analysis Report is annexed which forms part of this Report.

29. Business Responsibility Report:

The Business Responsibility Report is annexed which forms part of this Report.

30. Corporate Governance:

As a listed Company necessary measures are taken to comply with the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015. Report on the CorporateGovernance together with a Certificate on compliance of Corporate Governance byIndependent Auditors forms part of this Report.

31. Recognitions:

The Shrimp Feed Plants at Kovvur Vemuluru in West Godavari District Andhra Pradesh andPlant at Valsad Baida Village Pardi Tq Gujarat received ISO 9001: 2008 Certification forquality management systems. These plants are also certified for implementing BestAquaculture Practices by Global Aquaculture Alliance USA.

The Company was awarded Forbes Best Under a Billion Award and Fortune Next 500 CompanyAward by Fortune India Magazine.

32. Whistle Blower Policy:

The Company established Whistle Blower Policy for directors and employees to reportconcerns about unethical behaviour actual or suspected fraud or violation of theCompany's code of conduct or ethics policy. The practice of Whistle Blower Policy isoverseen by the Audit Committee and no employee has been denied accesstothe Committee. TheWhistle Blower Policy is available at the Company's website: avantifeeds.com

Your Company treats its human resources as one of its most important assets. YourCompany continuously invests in attracting retaining and development of talent on anongoing basis. Your Company's thrust is on the promotion of talent internally through jobrotation and job enlargement.

35. Particulars of Employees :

The statement containing particulars of employees as required under section 197(12) ofCompanies Act

2014 indicating (i) the ratio of remuneration of each director to the median employeesremuneration and other details and (ii) statement showing the details of employees who arein receipt of remuneration of Rs.500000 or more are given in the Annexure-5 forming partof this report.

The Company has in place an Anti Sexual Harassment Policy in line with the requirementsof The Sexual Harassment of Women at the Workplace (Prevention Prohibition &Redressal) Act 2013. Internal Complaints Committee (ICC) has been set up to redresscomplaints received regarding sexual harassment. All employees (permanent contractualtemporary trainees) are covered under this policy. During the year ended

31.03.2016 the Company has not received any complaints pertaining to sexual harassmentof employees.

Acknowledgments :

Your Directors take this opportunity to express their deep and sincere gratitude andappreciation for cooperation extended by the Governmental Agencies Shareholders and Banksfrom time to time. Your Directors also place on record their appreciation for thecontributions made by the employees through their dedication hard work and commitment.Your Directors also convey thanks and appreciation to the valued customers and dealers fortheir continued patronage.